The ongoing summer heat wave, record demand for electricity, and public appeals for energy conservation to avoid widespread blackouts highlight both our dependence on electricity in our day-to-day lives and reliance on an aging electrical infrastructure and regulatory framework for investment in that infrastructure.
Global energy demand continues to rise, stressing the power grid and contributing to efficiency and reliability issues. The power "grid" refers to the interconnected network used to deliver electricity from suppliers to consumers. Electric power outages and interruptions cost the U.S. economy about $80 billion annually.
A combination of communication, automation, and information technologies—better known as the "smart grid"—is the solution to this challenge. Pairing these technologies with our current electrical infrastructure will help consumers manage their power use better and conserve energy without sacrificing their lifestyles.
A fully deployed smart grid will help reduce the financial and environmental costs associated with "peak load," when utilities are forced to activate the marginal, more expensive "peaker plants" required to meet spikes in energy demand.
Amusement Park Analogy
Imagine if amusement parks took a like-minded approach to handling peak crowds, such as during spring break. Operators could expand their parks to assure they could meet peak load requirements, but rides would be vastly underutilized most of the time. Instead, some amusement park owners offer pricing and promotions to balance the number of visitors throughout the year, lowering service costs by eliminating the need for expansion while maintaining quality standards.
A smarter grid will enable utilities and regulators to offer the same incentives to limit peak demand, ultimately encouraging consumers to delay certain activities—such as running the dishwasher or dryer—until late evening or early morning hours when the system is not as crowded. This in turn will enable utilities to balance the load and ensure system stability on primary grid infrastructure, preventing the need for utilities even to turn on peaker plants.
Today, the smart grid is in its infancy, and utilities, regulators, and consumer advocacy groups are working to define required changes to existing regulations, business processes, and technology to support a greener and more efficient energy infrastructure. On the surface this may seem straightforward, but these stakeholders must balance the competing demands of supporting more renewable power, assuring reliability and safety of supply, increasing information and control for the consumer, and minimizing total service cost.
Installing Smart Meters
The complexity of this balancing act was demonstrated with the recent decision by the Maryland Public Service Commission to deny Baltimore Gas & Electric's proposed investment to deploy smart meters, an initial stepping-stone to smart grid optimization. The regulators' rejection stemmed from BGE's plan to have consumers pay for the upgrade without associated guarantees of customer benefit.
The question of who pays and who benefits will need to be worked out on a case-by-case basis. Over time, the regulatory model will evolve to ensure that appropriate incentives are in place to drive the desired utility investments. What's clear is that the existing incentives must change to realize our objectives for more renewable power, more efficient grid operation, a more informed and empowered consumer, and support for plug-in electric vehicles.
Most American consumers agree that we need to invest in 21st century energy infrastructure. In June, GE (GE) sponsored a smart grid survey of a cross section of 1,000 U.S. consumers. Eighty-eight percent said they're willing to endure short-term pain in exchange for long-term gain, indicating they're willing to pay more to use smart devices to manage their energy use better. And 63 percent noted that they would work with their electrical utility company to influence change in their consumption habits.
Masked in Today's Rate Structure
The reality is that, with or without a smart grid, energy costs will continue to rise. With a smart grid, however, consumers will be able to make more informed choices about power. At the height of the recent heat wave, New York City's wholesale power prices jumped sixfold from the cooler off-peak hours of the early morning to the hotter on-peak hours of the late afternoon. These costs are ultimately passed along to the consumer, but today the costs are masked in an average rate structure. Today, the majority of residential electricity customers pay one set price—all day long—even though the utility's cost of producing electricity actually varies throughout the day. A smarter grid will enable more cost transparency, providing the opportunity for consumers to shift their use to the times of day when power is "on sale," which we call off-peak periods.
Stanford University published a new study finding long heat waves and high temperatures could be the norm in 30 years. This has been a hot summer, but imagine the heat we'll feel in the future if we wait to update the power grid, which has remained largely unchanged since the days of Thomas Edison.